**3. Islamic banking and capital regulation**

BCBS provides capital standard for conventional banks but Islamic banks are also under the same jurisdiction toward a safe and sound banking system. Islamic banks differ from the conventional banks in their operation due to

unique items in the liability side of the balance sheet, risk sharing with the depositor and investor, absence of interest, and so on. Moreover, Islamic banks cannot access some credit derivatives to mitigate risk like conventional banks because of governing by the Shariah Principle. Wide range of financing mode also poses Islamic banking to face different kinds of risk. Since the operation of Islamic banking differs from the conventional banking, the determination of capital requirements also differs [13]. Studies find BCBS capital regulation does not address the risk of Islamic bank and lacks the goal to minimize the level of risk faced by the Islamic banks. Furthermore, it contributes to increase the risk of Islamic banks [14].

The Islamic Financial Services Board (IFSB) is an international organization that provides prudential guidelines and standards for the Islamic banks, insurance (takaful), and capital markets to enhance the stability of the Islamic financial industry. IFSB provides the standards aligning with the global regulatory standards in calculating capital requirements, thereby making disclosure toward transparency and market discipline [12]. However, because of asset-based financing, profit-loss sharing, profit bearing, or loss sharing principle, the capital determination is different from the conventional banking institution. Like the BCBS, IFSB also advises countercyclical capital buffer to the Islamic banks to reduce the systematic risk during the period of excessive credit growth.
